Despite last week’s tiny pullback (0.71% on the S&P), the market continues to look as positive as it has for many weeks. If anything, the outlook has gotten even better since your last update.

Everything we like to see in a market pullback (because it implies it won’t last) occurred last week. Small cap stocks outperformed. Utilities made new highs. And our indicators remain entrenched in bullish territory.

In fact, the only thing we think that could stop us all from getting richer over the next few months would be another unexpected geopolitical trauma – a renewed war in Lebanon, an attack on Iran for failing to meet the U.N. deadline, or maybe the Taliban proving to be stronger than anyone in NATO expects.

Ordinarily we would consider such events to be long shots, although we wouldn’t dare guess the odds today. So what is it that makes today’s market so strong? Here’s our theory …

TOO MUCH MONEY? (WE SHOULD ALL HAVE SUCH PROBLEMS…OR NOT.)

When the book is finally written on today’s bull market, we think historians will declare it to have been driven much more by private equity and hedge funds than by central banks. No matter where we look – whether to U.S., European, or even global money measures – we see nothing but extremely high liquidity. It’s like the world economy is living in a vat of whiskey – it can’t help getting high.Read more...